This is especially problematic if one takes in to account that such economy should be already in postindustrial phase, physical work should be mostly automated and using slaves for doing McJobs doesn't look so seriously (even if that actually was economically reasonable).

Setting so far:

Side "A" - Oligarchy, at least pretends being benevolent, high HDI (let's say good compulsory education, while unhealthy lifestyle is misdemeanor), high taxes, developed industrial base, rather peaceful, thanks to high level of surveillance of its population can keep crime very low, provides bread and circuses of fine quality. Technologically beats contemporary first world countries by roughly a decade.

Side A was so peaceful that merely provided huge amount of arms and economic aid for a proxy war against B. As retaliation A was attacked by B with aim of forcing A to leave conflict or even pay contribution. A mobilized forces, prevailed thanks to superior firepower and took the invading forces as POWs.

So what would be reasonable to do with those POWs? Where to employ them?
There is no need to follow anything like Geneva Convention, though awful and pointless mistreatment of such POWs would be disliked by public opinion. (minor and justifiable is all right)
There are varied levels of loyalty among POWs (some were simply drafted and are willing to change sides inexpensively, some are fanatically loyal and willing to hide their grudge well to sacrifice their life in the right moment, some are fanatically loyal and violent all the time).
The caught POWs practically don't have any useful skills, but can be taught them.

Public opinion in A vague expectation: presumably some kind of resocialization, presumably somewhere far (classical: NIMBY), presumably in decade they can be nice but a bit odd neighbours, somewhat anxious about possible crime increase.

Elites expectation in A: whatever, but do that cheaply (at best profitably) and don't endanger social stability.

The answer is "sell them back to Side B". Concessions of various sorts, the obviously necessary peace treaty.

Secondary answer: "give them to Side C" (that is, whomever they were having the proxy war with). These are, after all, their enemy as well. And if they're fighting a more direct war, they might have "methods" for dealing with POWs.

In any case, the easiest option will be to put the responsibility for their care on someone else, and get as much benefit out of it as possible.

Implant surveillance-type locator devices in all of them, with an anti-tamper booby-trap. If they re-enter country A, they can be located and all those they associate with can be swept up as well. After all, you did say that country A has a high degree of surveillance already.

Side "A" - Oligarchy, at least pretends being benevolent, high HDI (let's say good compulsory education, while unhealthy lifestyle is misdemeanor), high taxes, developed industrial base, rather peaceful, thanks to high level of surveillance of its population can keep crime very low, provides bread and circuses of fine quality. Technologically beats contemporary first world countries by roughly a decade.

So what would be reasonable to do with those POWs? Where to employ them?
There is no need to follow anything like Geneva Convention, though awful and pointless mistreatment of such POWs would be disliked by public opinion. (minor and justifiable is all right)
There are varied levels of loyalty among POWs (some were simply drafted and are willing to change sides inexpensively, some are fanatically loyal and willing to hide their grudge well to sacrifice their life in the right moment, some are fanatically loyal and violent all the time).
The caught POWs practically don't have any useful skills, but can be taught them.

Elites expectation in A: whatever, but do that cheaply (at best profitably) and don't endanger social stability.

"A" is an oligarchy, so as long as the bread and circuses continue, the

Proletariats.

proles will willingly stay underfoot. As such, I'll consider things from the point of view of the ruling class. As the ruling class, our goal is to retain power through any means possible; indeed, we'll expand our powers if we can.

Propaganda would play a key role here, as it did in Nazi Germany and the Soviet Union (and still does in several countries who will go unnamed). Aside from convincing the proles that "B" actually poses a threat "serious enough to require some curtailment of the rights and privileges of Our Citizens", our state-run media would serve a second useful function: they wouldn't report things we didn't want them to report.

We can, in effect, "disappear" POWs and political dissidents by removing them to remote locations. This keeps the proles happy because as everyone knows, NIMBY is a very common response to such undesirables. Now, what are we to do with these degenerates, whom we have geographically isolated? We COULD put them to work, but we shouldn't trust them with infrastructure or anything else that commerce or safety might depend on, because there's no telling what they'll do.

This leaves us with but three real options: menial labor, liquidation, or medical experimentation. The Soviet Union employed a vast network of labor camps, but how many rocks do we really need to split in this day and age? We're not trying to build the Pyramids, after all. The Nazis turned to liquidation, but that requires a highly advanced propaganda machine, and the individuals who would kill on orders are a danger to society itself... eventually, they would need to be liquidated themselves. That's an unpleasant cycle, and a high-maintenance one at that. That leaves us with medical testing... which is honestly the most viable option of the three. Whether testing the latest cure for a disease or creating the latest in chemical or biological weapons, having an army of test subjects would work to our advantage.

Holding the POWs for ransom wouldn't work well, though we might make an exception if the enemy has captured any of our soldiers. Beyond that, we could take the most likely candidates and subject them to intensive psychological conditioning, with the intent of redirecting their loyalty away from B and towards ourselves.

@TanaNari
The situation looks more as early phase of long war of attrition with not fully rational adversary so any exchange of POWs is unlikely.
Sending them to an ally is possible, however the ally has poorer tech level and enough of POWs so any further shipment would not be specially useful, and expected return on investment is low. (however, it is an interesting idea that I haven't thought of)

@Dalar

Proles? No, they are rather epsilons... The setting is less inspired by Nineteen Eighty-Four and more by Brave New World (but with mostly intact families, lack of official caste system, more varied psychedelic stuff than merely soma and with high pressure of economic growth)

The ruling class in A needs at least semi-free flow of information for technological and economical reasons. It very willingly accepts open debate as long as the conclusion is that opinions among society are varied, and the ruling class merely approved reached compromise or helps to create such (or just makes a decision and claims that's the compromise). It endorses independent experts that think out of the box, because their ideas can be useful, and as fringe benefit they divide society enough to make any unified opposition impossible.

They fear situation like regime vs opposition. They love case where there are the mainstream surrounded in all directions by different tiny groups. They support the later as way of fighting with false dichotomies. The oligarchy is divided in to different parties with nuanced differences that can change the ruling coalition every election among the small group of citizen that's entitled to vote.

Liquidation of opponents is out. (Fining people that disrupt the order is all right...) B as an enemy is indeed very useful, especially that there is no need for any manipulation to show that a few of practices of B are barbaric and only strong united country can defend its citizens.

What about apparel manufacturing and food processing industry? Could the caught labour force be used there effectively? Or still not worth the effort?

Hmm... I wouldn't trust 'em with food, but sweatshops might not be a bad idea. If liquidation truly isn't an option, and experimentation is too unpalatable, forced labor is really the only option remaining.

So... sweatshops, ditch-digging, rock-splitting, and the like. I'd keep them away from the food industry, infrastructure, and anything else where a malicious worker could cause havoc. After all, you wouldn't want them sneaking feces into the beef carcasses, would you?

A possible small scale option is to manipulate some of them into examples of why B is so horrible. Select out a few psychologically unstable ones and 'let' them escape. The havoc they wreak can be used to justify whatever the oligarchs would like, from nuking B to imposing stricter 'security measures' on society to kangaroo courts handing out the death penalty, and more.

Consider the case of stories like The Running Man and Gamer. The specifics of those movies were over the top, but the general idea is reasonably sound. No matter how much we like to think we're evolved and refined, people really do like gladiatorial combat. It could even be that the viewers are told it's fake violence, fake blood, fake deaths. Isn't modern tech incredible? I never knew they could manage a live fake decapitation! Even if it isn't to the death, I'll bet most people would just watch and not complain about terrorists (or whatever they call them) beating the crap out of each other for entertainment, so long as the winner(s) get some kind of reward and the losers get medical treatment (or so they claim).

Use them for military exercises to toughen up green soldiers of A. Soldiers have to kill people, it's part of what they do.

I really like the medical test subject idea. There's no real reason why ordinary people would ever know about it. Even if they did, think about animal testing that we do now. Everybody knows companies do it, everybody thinks it's icky. They've been doing it for decades, though, and it hasn't stopped yet. The key to this kind of thing is to control perception, which sounds like something your oligarchs can handle. Instead of trying to keep it a secret, they put out some video claiming they're all volunteers, everything is rigorously tested in labs first, and blah blah blah.

No matter how far a society comes there will always be jobs that are cheaper and easier to do with forced slave labor than machines. If this wasn't true, then there would be no slave labor at all, no sweat shops. They exist because they are cheaper.

I bet your happy-nice society has fields that could be more cheaply tended by a large slave-force than by expensive machines.

No matter how far a society comes there will always be jobs that are cheaper and easier to do with forced slave labor than machines. If this wasn't true, then there would be no slave labor at all, no sweat shops. They exist because they are cheaper.

I bet your happy-nice society has fields that could be more cheaply tended by a large slave-force than by expensive machines.

The trick is to find those jobs where it actually IS cheaper to house, feed, and clothe a large labor force. While some farming (such as strawberries) is best done by hand, it's

A possible small scale option is to manipulate some of them into examples of why B is so horrible. Select out a few psychologically unstable ones and 'let' them escape. The havoc they wreak can be used to justify whatever the oligarchs would like, from nuking B to imposing stricter 'security measures' on society to kangaroo courts handing out the death penalty, and more.

And what about keeping scientific rigour and rule of law? After a few days of friendly treatment each POWs is given a chance under well controlled conditions to "escape" and "murder a few civilians". Would he take chance?
No - reeducation camp with brainwashing, soft line sweatshop and a chance of promotion for a quisling. In long term can be promoted even for a McJob.
Yes - sorry, that person is simply terribly dangerous and unreformable, and tried to commit a list of serious crimes. No pity for him. Should be shot on spot, but thanks high level of humanitarianism will be instead send for medical research and hard line sweatshop.

Quote:

Consider the case of stories like The Running Man and Gamer. The specifics of those movies were over the top, but the general idea is reasonably sound. No matter how much we like to think we're evolved and refined, people really do like gladiatorial combat. It could even be that the viewers are told it's fake violence, fake blood, fake deaths. Isn't modern tech incredible? I never knew they could manage a live fake decapitation! Even if it isn't to the death, I'll bet most people would just watch and not complain about terrorists (or whatever they call them) beating the crap out of each other for entertainment, so long as the winner(s) get some kind of reward and the losers get medical treatment (or so they claim).

Use them for military exercises to toughen up green soldiers of A. Soldiers have to kill people, it's part of what they do.

I really like the medical test subject idea. There's no real reason why ordinary people would ever know about it. Even if they did, think about animal testing that we do now. Everybody knows companies do it, everybody thinks it's icky. They've been doing it for decades, though, and it hasn't stopped yet. The key to this kind of thing is to control perception, which sounds like something your oligarchs can handle. Instead of trying to keep it a secret, they put out some video claiming they're all volunteers, everything is rigorously tested in labs first, and blah blah blah.

I also thought about it, considered it interesting utilization of the most violent ones, but I was not sure how many reasonable research projects country A was able to start immediately. They first have to be tested in preclinical phase which might last a while.

According to wiki for test phase 1 you need 20-100 healthy volunteers, for phase 2 between 100-300. Assuming that they do it right you shall be able to reuse most of those guys in many more trials.

I have one more idea how to show that POWs are not mistreated and research get high support of lower levels of society - among other new recreational substances are tested